Sweden's start-up scene is more interesting than Berlin's, but that could change
By L.S. | STOCKHOLM
SWEDES don’t like to boast. In private this may be a pleasant trait. But in the highly competitive world of technology start-ups—and the places where they cluster (“ecosystems” in the lingo)—it is a big disadvantage. “Berlin is getting all the attention, but we never talk about how great Stockholm is,” complains Carl Waldekranz, the boss of Tictail, an e-commerce firm based in the Swedish capital.
Mr Waldekranz would say that: he is one of the instigators of a group of Swedish entrepreneurs that wants to get the word out about Stockholm. But he has a point: Berlin may beat it in terms of hype and sheer number of internet start-ups, but in some ways the Swedish capital boasts the more interesting technology firms. Yet this may change if the powers that be in Sweden do not make life easier for entrepreneurs, in particular for taxes and the property market.
The anchor of Stockholm’s ecosystem is Spotify, a successful music-streaming service. But the city’s centre is also home to less well-known, but similarly successful firms. On the northern edge one finds Klarna, which lets people shop online without a credit card. Further south is Mojang, the maker of Minecraft, a hugely popular online game. In between, there are more than 50 smaller firms, according to startuplocation.com, a website that keeps track of such things (see picture). These include Tictail, Stardoll (an online game based on the idea of paper dolls) and Wrapp (a site for virtual gift-cards).
What makes Stockholm a particularly interesting place for technology tourists, however, are start-ups that combine hardware, software and online services. Memoto has developed a brooch-sized camera to “log” one’s life (it takes two pictures per minute, to be flipped through on a smartphone and uploaded to the cloud). iZettle makes an add-on for smartphones that, together with an app, lets individuals accept credit-card payments. Tobii’s technology enables all sorts of devices to track people’s eye movements. Somewhat of a different beast, Zound Industries has launched several successful headset brands, including Urbanears and Molami.
Such hybrids point to one of the ecosystem’s strengths: these firms are something of a cross between Ericsson, the giant Swedish maker of telecoms gear, and IKEA, which was founded in Sweden, but is now based in the Netherlands. “Swedes want to build the best stuff possible,” explains Pär-Jörgen Pärson of Northzone Ventures, one of the two big VC firms in Sweden (the other being Creandum). “Add to that our tradition of design, and it is easy to understand why Swedish websites are both robust and easy to use.”
Yet Stockholm’s ecosystem would certainly not be as lively without two other Swedish traditions: conformism and an active state. Somewhat surprisingly, but conformism helps explain why the country is a market of early adopters. “If a new hat becomes fashionable, everybody has it within two weeks,” says Lea Bajc, another partner at Northzone Ventures.
The second tradition—the active state—ensures a solid infrastructure. The Swedish government helped households buy personal computers, creating a culture of computer literacy. It has made sure that broadband internet connections are widespread and among the world’s fastest. Even Sweden’s still generous welfare state seems to help: rather than sapping entrepreneurial spirits it boosts them, some argue. “We don’t have to worry that we’ll end up on the street like in the United States,” says Navid Rostam, co-founder of Instabridge, a smartphone app which lets users easily share a WiFi connection with their Facebook friends.
But both conformism and the state also hold Stockholm’s ecosystem back. Attitudes have changed much in recent years, particularly among younger Swedes, Jacob de Geer, boss of iZettle, points out. Still, too much individuality is frowned upon—a legacy of the “Law of Jante”, a concept which long governed how Swedes behaved. “You're not to think you are anything special,” is one of its rules. As a result, many see individual success—a big driver of entrepreneurialism—as unseemly. And failure, considered a sign of experience in Silicon Valley, comes at a high social cost.
This is a drag on entrepreneurial activity. According to the Global Entrepreneurship Monitor, a think-tank, whereas many Swedes see opportunity in starting a business, few actually do it. And although there are plenty of rich Swedes with lots of professional experience, the country lacks business angels willing to support and advise young companies until they are ready for bigger investments from VC firms. Even successful entrepreneurs sometimes prefer to hide their riches. “When I sold my company, I didn’t make the purchase price public. It would have changed my relationship with my friends,” says Jonas Hombert, the founder of JayCut, a maker of video-editing software, which he sold in 2011.
Such attitudes will evolve, but the regulations that reflect them are harder to reform. Being an entrepreneur in Sweden, for instance, is still very expensive. Stock options are considered an employee benefit, meaning holders—if they haven’t paid for them upfront—owe Sweden’s high income tax when they are exercised or a start-up is sold (investors only owe the lower capital gains tax).
Even more of a problem, at least for those want to move to Stockholm to work for a start-up, is housing. Finding a place to live there can take months: apartment owners are not allowed to rent them out without a special permit, so the only solution is subletting—which is expensive. Spotify and other big firms can afford to pay an additional €2,000 per month if they want to hire a senior manager from abroad. But for early-stage start-ups it is exceedingly difficult to attract foreign talent. “New hires often have to sleep in their office,” says Mr Waldekranz.
Stockholm’s disastrous rental market, even more than Swedish restraint, helps explain why Berlin’s ecosystem gets so much attention. A big reason why Germany’s capital is so attractive for entrepreneurs is its supply of readily available apartments at cheap rents. Cost certainly played a role when in 2007 SoundCloud, which lets users share audio-recordings online, decided to base itself in Berlin. Today the firm is one of the city’s most successful start-ups. Ironically, it was founded by two Swedes, who are now among Berlin’s most ardent boosters.
Correction: This article has been amended to reflect readers' comments.
